With Venezuelan Food Shortages, Some Blame Price Controls [View all]

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Source: NYT

CARACAS, Venezuela — By 6:30 a.m., a full hour and a half before the store would open, about two dozen people were already in line. They waited patiently, not for the latest iPhone, but for something far more basic: groceries.

Venezuela is one of the world’s top oil producers at a time of soaring energy prices, yet shortages of staples like milk, meat and toilet paper are a chronic part of life here, often turning grocery shopping into a hit or miss proposition.

But many economists call it a classic case of a government causing a problem rather than solving it. Prices are set so low, they say, that companies and producers cannot make a profit. So farmers grow less food, manufacturers cut back production and retailers stock less inventory. Moreover, some of the shortages are in industries, like dairy and coffee, where the government has seized private companies and is now running them, saying it is in the national interest.

If there is one product that Venezuela should be able to produce in abundance it is coffee, a major crop here for centuries. Until 2009, Venezuela was a coffee exporter, but it began importing large amounts of it three years ago to make up for a decline in production. Farmers and coffee roasters say the problem is simple: retail price controls keep profits close to or below what it costs farmers to grow and harvest the coffee. As a result, many do not invest in new plantings or fertilizer, or they cut back on the amount of land used to grow coffee. Making matters worse, the recent harvest was poor in many areas.

Read more: http://www.nytimes.com/2012/04/21/world/americas/venezuela-faces-shortages-in-grocery-staples.html?_r=2

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Good example of how good intentions can sometimes have bad consequences.